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Tax on Pension Frequently Asked Questions

 

Reimbursement Process

 

The approach used by the Bank in calculating tax reimbursements for retirement income is similar to that currently used for the reimbursement of U.S. Federal and State income taxes on Bank income. The calculation utilizes itemized deductions and personal exemptions reported by the retirees on their tax returns and such deductions and exemptions are allocated proportionally to all sources of income, including retiree outside income. Spouse income is also taken into consideration to determine the effective tax rate.

 

 

The tax reimbursement procedure consists of a two-step process in which first, tax reimbursement payments are advanced to the retiree based upon information submitted from the retiree; and secondly, a settlement process is performed after tax returns have been filed. Because the advances are based upon estimates and because the retirees will establish their right to tax reimbursement only at settlement, tax payments are treated as advances and will not be reported as taxable income in the year of receipt. The amount of the settlement will be reported as taxable income in the year the settlement calculation is completed.

 

 

Reimbursement Steps


Step 1 - Payment of Tax Advances

 

In the initial year that a retiree becomes eligible for tax reimbursement on retirement income, a request may be made to the Bank for advance payments for anticipated taxes as a result of their IDB retirement income. This request will be made by submitting to the Bank an IDB Tax Form 1R to estimate the necessary tax reimbursement. Upon review and approval by the Bank, quarterly tax advances will be made to the retiree to cover the anticipated tax liability.


 

Step 2 – Tax Settlement

 

Because payment of tax advances will be made based upon estimates and the final reimbursement calculation will take into account actual tax return information relative to spouse income, retirement income, outside income, itemized deductions and personal exemptions, retirees who receive tax advances will be required to submit their tax returns to the IDB or a third party designated by IDB to perform the settlement calculation.

 

Retirees will provide the requested appropriate information which will include a copy of the tax return(s) as filed together with a completed Settlement Request (IDB Tax Form 7R).

 

Settlement Requests (IDB Tax Form 7R) must be submitted each year for which tax advance payments are made by the Bank. After tax returns for such years have been prepared, these requests must be submitted to the IDB or a third party designated by the IDB by the first week in July. If this deadline cannot be met, an explanation for any delay in meeting the deadline should be promptly sent to the IDB or to the designated third party.

 

For further information, please contact the IDB Deloitte Tax Team at (202) 623-2766 or via email:  taxconsultants@iadb.org. calculation is completed.

 

 

Tax on Pension Frequently Asked Questions